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Would you want the government to be your tenant?


You may have seen "LHA" written in our reports next to the anticipated rental figure for a property.  This is the rent the government will pay the tenant to hand over to the landlord in exchange for letting the unemployed person live in the landlord's property.


You will notice that the LHA is almost always greater than the expected market rent for the property.  This is because the LHA is based on average rents for a particular number of bedroomed property. 


So if you find below averaged priced properties BUT get average priced rents then it does not take a genius to work out that landlords can coin it in!  This is because you can get a decent rent for a low end property.


Take the ludicrous example (but I am sure there are people who do this!) where I purchase a caravan on a site that has 3 bedrooms in Great Yarmouth for £8,000.  It would be safe to say this is as low as it gets right?  Then I was able to find a single mum with 2 kids aged 12 and 6 who LOVE living in caravans. 


This single mum could go to the government and get rents totalling £120.82 per week.  That works out to £523.15.  This means the yield on this sort of set up would be 79%.  Now I do not know what sort of returns you expect to get from an investment but that is pretty hard to beat on pure cashflow terms.


Now in reality this scenario would be rare but please note:


  1. There is nothing to stop a housing benefit claimant getting their full LHA entitlement.  It is every citizen's right to get this.  If you are a single mum with two kids aged 12 and 6 living in Great Yarmouth then you can get £120.82 every week.  Full stop.
  2. The government cannot refuse anyone their entitlement to LHA.  If the unemployed person has found a landlord with a dwelling who is willing to let to you then the government has to cough up.

There is also some more exciting news in the pipeline.  If labour want to get the landlord's vote they need to offer what the conservatives have promised to do which is give the tenant the right to opt to pay the landlord direct.  Even if you do not collect direct if the tenant fails to pay you then you can go direct to the government and they will pay you direct if the tenant is now only 2 weeks in arrears. 


So do 79% yields float your boat?  I am sure they do.  The only problem is caravans are not great investments for the investor like me and hopefully you.  Problem is caravans are depreciating assets with no land rights so if you had the urge to search DALTONS WEEKLY for a 3 bed caravan then please STOP!


So what is the next best thing to a caravan?  Well a low value, ugly looking, ex-local authority studio flat in the rough part of a rough town!  Here you might get 20% yields and they will give you plenty of hassle but I can assure you of one thing:


THEY MAKE YOU RICH IN THE LONG TERM!


90% of my portfolio is made up the worst undesirable properties in the neighbourhood.  I have been doing it for 12 years.  The first one I bought was an ex-local authority 5 bed house in the notorious Harlow new town in the notorious Ladyshot estate.  I paid £53,500. 


Do you know what it is worth now?  I would say at its peak it was worth £250,000 but now lets prudently say it is £160,000.  After fees I would clear £100,000 on this property as profit.  If I do not sell I clear profit of £500 per month courtesy of the government.


So would you invest in some of these undesirables?  Give it some thought.  Just to let you know the market at the bottom end is totally ripe for those who can stomach it.  If you are still undecided please:


VIEW MY VIDEO ON LHA NOW


Posted on: 24th Mar 2010




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